It is no secret that Iran has vast reserves of natural resources. As new projects open up to foreign investment, Iran has an opportunity to develop gas reserves further and address domestic issues to grow its gas exports.
Iran is sitting on the second largest reserve of natural gas in the world, yet only has a limited role in the international gas trade. Since the lifting of nuclear sanctions, Iran has taken steps to attract foreign investment and tackle domestic issues in a bid to boost its gas exports.
Three stumbling blocks have hampered gas exports historically:
1. Domestic gas issues
Iran is the third largest gas consumer worldwide and currently exports gas mainly to Turkey. The high level of domestic gas consumption won't be a bottleneck for future volume availability. Penetration of gas is high across key sectors and more diligence in subsidy management and efficiency gains will encourage lower consumption per capita.
The emphasis will be on internal alignment to decide how to monetise gas volumes. Potential strategies include: increasing gas re-injection to support oil production; to exporting petrochemicals derived from natural gas; to developing new gas export options. However Iran needs a gas roadmap to prioritise these sectors and give clarity to potential investors.
The lifting of nuclear sanctions has sent a positive signal. Future South Pars phases and projects offered under new fiscal terms could create a significant surplus, however timely developments will be needed to achieve a healthy balance between priorities.
This further highlights the importance of attracting foreign investment and technology. However, while Iran will be able to leverage its domestic gas infrastructure to export piped gas to neighbouring countries, substantial progress on infrastructure is still needed outside of the country.
3. Commercial issues
Iran has a wealth of options for gas exports. Piped gas to neighbouring countries and LNG exports. Pakistan and Oman appear credible export opportunities, but volume and price negotiations are key risks. Iran also signed a deal to export gas to Iraq.
Stakeholder alignment on commercial terms could be challenging. While neighbouring countries could offer higher netbacks to Iran and enhance supply diversity for importers, gas pricing will have to be competitive in the current low-price environment.
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